Company's CEO says new products ‘are gaining momentum.'

Published 8:35 pm, Tuesday, February 1, 2011

The San Antonio medical device maker earned $74 million, or $1.03 cents a share, on $527.5 million in revenue for the three months ended Dec. 31. That compares with net income of $66.3 million, or 93 cents a share, on $526.8 million in revenue for the same period in 2009.

Excluding one-time charges, KCI posted net income of $1.17 a share for the quarter, a penny above the consensus estimate of analysts polled by Thomson Reuters.

KCI cracked the $2 billion annual revenue mark for the first time in 2010. Revenue was almost $2.02 billion, a 1.3 percent increase from 2009's $1.99 billion.

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“The ship is starting to turn in the right direction,” said Paul Choi, an analyst with Caris & Co. in New York. “KCI is making steady progress and slowly building momentum in their base wound-care business.”

KCI anticipates revenue will grow 2 percent to 4 percent this year, and projected earnings will increase 4 percent to 7 percent for the year.

KCI's shares fell 33 cents to close at $45.80 Tuesday.

“Our focus on investments and our key strategic initiatives ... positions us well for 2011 and beyond,” Catherine Burzik, KCI's president and CEO, said in a conference call with analysts. “New product introductions are gaining momentum.”

In the latest quarter, KCI rolled out its V.A.C. Via Therapy System, billed as the next generation of negative-pressure wound-therapy solutions.

Still, that segment of its business was flat in the latest quarter, with revenue of $367.1 million. Movements in foreign-currency exchanges unfavorably affected sales in the advanced-healing solutions segment by 1 percent. KCI expects the division this year will face modest pricing pressure in Europe with increased competition.

Sales in KCI's therapeutic support services (TSS) business, which sells specialty hospital beds, plunged 19.5 percent to $66.6 million in the latest quarter. KCI attributed the decreased demand to a far less severe flu season than in 2009.

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Burzik noted the division also went through changes in leadership, sales, and research and development last year that have been “dramatic.”

“We feel good about the TSS business,” Burzik said.

The operating segment focused on skin regeneration and replacement showed a big upswing in sales. Revenue from the regenerative medicine division rose 22 percent to $93.7 million in the fourth quarter. Sales of Strattice, used in challenging hernia repairs, accounted for 43 percent of the division's sales.

The company Tuesday reported a $350 million increase in its main credit facility, leading to expectations that it will be active in making acquisitions this year.

“You're kind of now seeing all three of our business segments and the leadership there starting to build M&A (merger and acquisition) pipelines,” Burzik said.

That would include licensing deals such as the one KCI announced Monday. It licensed Wright Medical Group's Graftjacket brand for wound-care applications, such as diabetic foot ulcers. Last month, KCI acquired TechniMotion Medical Inc., an Austin-based company that develops patient-handling systems for acute care and post-acute care.

Meanwhile, KCI disclosed that it would be “inappropriate” to continue to pay royalties on two patents it licenses from Wake Forest University in the wake of a federal judge's ruling in October invalidating the patents on the company's wound-closure devices.

“We don't know where the discussions with Wake Forest are going to end up,” Burzik said in response to an analyst's question on whether KCI's position was that it shouldn't be paying the royalties at all. “We see there being a whole range of options here. I wouldn't assume one thing versus another.”

KCI still is considering whether to file an appeal in the case, which was heard in San Antonio last year.